Audio 4:06
Europe reports worst car sales in 20 years

Jane NormanUpdated
Fri 12 Jul 2013, 11:04 AM AEST

Car maker Holden has reportedly asked the Federal Government for more industry assistance as the company struggles with high costs and a high Australian dollar. The request comes just months after Ford announced it's quitting manufacturing in Australia from 2016. But Europe's car market is also struggling. It's reporting its worst car sales in 20 years and auto makers are warning more car plants will have to close.

Transcript

TONY EASTLEY: Car maker Holden has reportedly asked the Federal Government for an extra $60 million in assistance as the company struggles with high costs and a relatively high Australian dollar.

The request comes just months after Ford announced it's quitting manufacturing in Australia from 2016, closing down its plant in Geelong in Victoria.

Europe's car market is also struggling. It's reporting its worst car sales in 20 years and auto makers there are warning more car plants will have to close.

With more, here's Jane Norman.

JANE NORMAN: Car makers in Australia have long complained that times are tough but in Europe they seem to be even tougher.

With six out of 10 car plants losing money, the head of Ford, Stephen Odell, has warned the industry there is in catastrophic decline.

Ford is shutting plants in Belgium and the UK, Peugeot and General Motors are following suit.

John Mellor is a car industry commentator and publisher of GoAuto.com.

JOHN MELLOR: The European countries are in financial difficulties. They've overspent, they've over-borrowed, they're subject to austerity measures which are not popular and whenever austerity measures come in one of the things that people stop buying is the car. They don't replace the car quite as quickly as they might and that has a knock-on effect right across the car industry and it causes serious lack of demand.

JANE NORMAN: And the proof is in the numbers. Car sales in Europe are down from 16 million in 2008 to 13 million in 2012 and there are expectations that will fall a further 7 per cent this year.

John Mellor says demand is low but supply remains as high as ever.

JOHN MELLOR: And they have been for generations. The Europeans have been producing far too many cars and indeed in Europe there are places you can go and buy brand new cars that have never turned a wheel apart from being driven on the truck as second hand cars. They just have far too many cars produced and they've been trying to close car plants for generations over there and they simply can't do it.

JANE NORMAN: And what's holding them back from doing that?

JOHN MELLOR: Well, the problem is it is so political. Apart from the fact that governments in Europe own shares in car companies. For example, the government of Lower Saxony owns a very big stake in Volkswagen and the French government has always had big stakes in Peugeot and Citroen and Renault. The problem is that whenever they go to close a car plant, they just simply can't get through the politics.

General Motors tried to sell Opal and they still have Opal and they still have too many plants and they just can't get the politics done.

JANE NORMAN: But John Mellor says there is reason to be optimistic.

The US car industry suffered a massive hit during the global financial crisis. Car sales there fell 17 million a year to just 10 million. But a restructure of car companies and a resurgence in demand has turned the industry's fortunes around.

JOHN MELLOR: People have delayed the purchase of a new car but they eventually get to the point where the old cars are wearing out and they do need to replace them and now we see the American market is coming back to, this year it's running at a rate of about 15 million units a year.

So inevitably, you know, the replacement urge takes over and the necessity of replacement takes over and car sales rebound again. This will happen in Europe but it just depends on how quickly some of those countries can rebound from their debt issues.

And as mentioned the news in the US is slightly better but the place to look at is China, the world's largest car market. There, it has increased production by just over 11 per cent year-on-year in June, according to an industry group.